Reference no: EM131134179

SIMPLE INTEREST AND COMPUND INTEREST

FORMULA OF SIMPLE INTEREST

SI=P*R*T/100
P=100*SI/R*T
R=100*SI/P*T
T=100*SI/P*R
A=P+SI=P+ (P*T*R)/100=P(1+(R*T)/100)

WHERE P=Principal=Rate of interest per annum,T=Number of years, I=Simple interest and A=Amount.

Point to Remember:
Here, the interest is calculated on the original principal. The interest earned on the principal is not taken into account for purpose of calculating interest for later years.

COMPOUND INTEREST

In compound interest we consider;
P=Principal
R=Rate percent per unit time
Time=n year
A=Amount
CI=Compound Interest
Then if compound interest is calculated after n year then
A=P (1+R/100) to the power n
CI= P (1+R/100) to the power n-P

Point to Remember:
In compound interest the interest is added to the principal at the end of each period *Here are some shortcut formulas for better solving the questions for compound interest:

1) If the rate of interest differs from every year i.e. R1 in first year, R2 in second then

A=P (1+R1/100)(1+R2/100) and so on

2) When the principal changes every year, then we have to calculate compound interest

A=P (1+R/100) to the power n

3) When the principal changes every six months then

A=P (1+(R/2)/100) to the power 2n.

4) When the principal changes every three months then

A=P (1+(R/4)/100) to the power 4n.

5) When the principal changes every month then

A=P (1+(R/12)/100) to the power 12n.

Now we can take some questions and solutions for some unique cases:

Answer the following question given below:

Question1:At what rate per cent per annum will a sum of money double in 6 years?

Question2:Find the compound interest on Rs 15000 at 10% per annum for 2.5 years?